Every time a new loan, credit card or finance product is arranged, it is covered by the Consumer Credit Act 1974. The Consumer Credit Act was explicitly designed to give consumers some protection when they take out financial products such as loan agreements and credit card purchases.
When this act is combined with the Financial Services and Markets Act 2000, and a range of other European consumer credit regulations, it offers a robust set of protections and regulations for consumers using credit in the UK.
What is covered by the Consumer Credit Act?
The Consumer Credit Act covers all credit facilities that are between £100 and £30,000. These debts are called regulated debts and can include:
- Credit cards
- Store cards
- Payday loans
- Personal loans
- Car hire purchase agreements
- Finance agreements
- Secured loans
- Second charge mortgages
As a general rule, any borrowing you have done from April 2008, other than purchasing your home, should be covered by the Consumer Credit Act. The Consumer Credit Act will only cover any debts dating back to before April 2008 if they were for less than £25,000.
Some specific debts are not covered by the Consumer Credit Act, including mortgages, charge cards, debts owed to other individuals, debts owed to a utility company, or debts owed to unlicensed companies.
What does it mean to be covered by the Consumer Credit Act?
There are a number of benefits to consumers that come with being protected by the Consumer Credit Act. If you have taken out a loan or other form of finance and are struggling to keep up with the repayments, then the lender could take legal action and even repossess your home or other assets.
If the Consumer Credit Act covers this loan or finance, then you will have a bit of extra time to resolve the problem before the lender can begin repossession proceedings. Lenders are obliged to issue you with a default notice which states details on the payments you have missed, the date your arrears must be cleared by (this date must be over 14 days away) and what will happen if the arrears are not settled in the timeframe given.
Once you have received a default notice, you have the choice to apply for a time order to prevent repossession proceedings.
The Consumer Credit Act was designed specifically to protect borrowers from unfair lending. It ensures that all lenders are licensed under the Office of Fair Trading and abide by all the relevant regulations in order to provide fair funding.
One of the most prevalent parts of the Consumer Credit Act for credit card holders is Section 75. Section 75 offers additional protection for consumers; this means that in the event that you make a purchase on a credit card and then there is an issue with the product or service then you are protected by your credit card provider.
If faulty goods are purchased using a credit card, then not only can you contact the seller for a refund, but your credit card provider is also liable for providing you with a refund. This is very valuable in situations where a seller is no longer able to give a refund, for example, if they have gone into administration.
How does the Consumer Credit Act effect entering into credit agreements?
The act establishes some key foundations for the way that lenders can enter into credit agreements with consumers in the UK. These key foundations include:
- Specific information must be provided to the consumer before a credit agreement contract has been signed. This includes the nature of the agreement, details of the creditor, agreement duration, type of credit, credit limit, interest rate and additional charges, and the total amount payable.
- The content and form of a credit agreement must be set out in a specific way that is easy to understand.
- How Annual Percentage Rates (APR) will be calculated during the agreement.
- Information on procedures for changes in the credit agreement, including early settlement, default or termination.
- The requirement to run a credit check on consumers using the information they have provided, and information held by a credit reference agency.
How does the Consumer Credit Act effect cancelling credit agreements?
The Consumer Credit Act, along with some other European regulations, gives consumers the right to cancel a credit agreement in a number of different situations. You have the right to cancel a credit agreement that you signed in your own home, entered into over the phone, or agreed to at a location, not on trade premises.
Most credit agreements are required to have a cooling off period just in case you change your mind; in most cases, this is between five and 14 days. Details of the cooling off period must be given before anything has been signed and finalised. Any credit agreements for over £60,260 or that are secured against land often do not have the same cancellation rights as others.